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May 20, 2013

9 Myths of Breakaway Brokers Becoming RIAs

New report from TDAI lays out the realities of becoming an RIA

There are nine myths about what it does—and doesn’t—take to become a successful breakaway broker, says TDAI

When Richard Kolb recently made the move to become a registered investment advisor, he turned to TD Ameritrade Institutional’s transition team to work through the phases of choosing an RIA path, setting up a business structure, transitioning client accounts and growing his firm with best practices.

“We were looking for more control over the business and culture, better access to technology and the ability to service our clients’ best interests,” said Kolb, managing partner at Libertyville, Ill.-based Integrys Wealth Advisors, which manages more than $340 million in client assets with a focus on financial planning and wealth management. “As an independent RIA we feel we can provide clients an even better experience and really focus on accelerating our growth.”

The resources that Kolb used, available via TD Ameritrade Institutional’s Bridge to Independence program, are designed to ease the transition for financial advisors looking to start their own RIA firm, join an established RIA or operate as a hybrid advisor.

“We’ve been supporting breakaway brokers through the decision-making and transition process for several years and have developed a deep understanding of advisors’ personal and professional considerations,” said Scott Collins, director of hybrid and advisor transitions, TD Ameritrade Institutional, in a statement. “It can be an emotional decision to leave a familiar business environment and start down a new path. In this new report, we’ve taken what we’ve learned from working with hundreds of advisors and identified the most common misperceptions.”

Read on to learn about the nine myths about what it does—and doesn’t—take to become a successful breakaway broker.

Myth #1: My practice isn’t large enough to become an RIA.

Reality: Advisors choosing to make a move span asset and production levels and typically fit an entrepreneurial mindset, according to TD Ameritrade Institutional. The RIA industry has seen a major influx of advisors either starting or joining an RIA firm. “In fact,” says TDAI, “since 2004, the number of RIAs has increased 38%, while the number of fully affiliated wirehouse advisors has decreased by 16%.”

Myth #2: The transition is too hard, and I will lose clients and revenue.

Reality: While moving from one firm to another firm or channel is a big commitment, most advisors have very successful transitions, and client loyalty remains high. Advisors transfer more than 90% of targeted assets when leaving their existing firm.

Myth #3: I won’t grow client assets the first year after I transition.

Reality: Growth potential is high, TD Ameritrade Institutional asserts, with 73% of advisors experiencing an increase in the number and quality of referrals within their first 10 months. Citing Cerulli data, TDAI notes that RIA market share grew 35% between 2007 and 2011, while wirehouse market share decreased by 13%.

Myth #4: I will have to give up my securities licenses and commissionable business.

Reality: Advisors may choose a hybrid model that allows them to maintain their licenses while still being independent, giving them the ability to do both fee and commission business, TD Ameritrade Institutional says.

Myth #5: If I go independent I may make less money and lose my retirement plan.

Reality: With industry averages for overhead expenses in the 40% to 45% range, advisors typically net a 55% to 60% payout after overhead expenses, which is double the typical wirehouse payout illustrated in the report. Advisors also have the opportunity to build business equity that might be monetized upon retiring.

Myth #6: I will not have access to robust technology as an RIA.

Reality: Industry analysts and advisors believe that the technology available to independent advisors now rivals what is available for wirehouse, TDAI asserts.

Myth #7: I won’t have access to a broad range of investment products.

Reality: By becoming an RIA, advisors have the ability to select the products most appropriate for their clients, according to TDAI. Asset custodians often work with RIAs to add new investment vehicles to their product lineup.

Myth #8: I won’t be able to grow as an RIA without a big Wall Street brand name and budget.

Reality: Establishing a brand or leveraging the brand of an existing RIA has benefits as consumer preferences are shifting, says TDAI, citing a ByAllAccounts fourth-quarter 2011 high-net-worth investor study.

Myth #9: It will be cumbersome and difficult for me to establish an RIA.

Reality: Unlike a decade ago, the resources available to advisors now are vast. Custodians have systems, processes and people to help advisors pursue their vision for independence.

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